Demand for office space plunges in 2nd quarter

Cao Qian
Shanghai's Grade A office market witnessed mixed outcomes in the second quarter as the city's commercial real estate landscape took a significant blow from the pandemic.
Cao Qian

Shanghai's Grade A office market recorded mixed performances in the CBD and decentralized areas in the second quarter of 2022 when the city's overall commercial real estate scene suffered a heavy blow from the pandemic.

Overall net absorption, a measure of office space demand, plummeted to 30,200 square meters in the city for the three months through June, according to JLL's latest quarterly study. This was in sharp contrast to just shy of 300,000 square meters registered in the previous quarter .

"Tenants' following through with pre-outbreak plans to end leases, coupled with new tenants' delayed move-in decisions, jointly contributed to the downturn in net absorption in CBD areas," said Jacky Zhu , senior director of office leasing advisory at JLL Shanghai on Tuesday.

"Net absorption in the decentralized market, meanwhile, stood at 37,900 square meters, compared with more than 250,000 square meters recorded between January and March."

While financial and professional services providers remained resilient and companies in the life science industry continued to show steady demand, trading, online education, and TMT (technology, media, and telecommunications) firms, among others, all lost some steam amid a slowdown in demand for office space, JLL research showed.

In terms of rents, those in CBD areas stayed generally stable with a quarter-over-quarter dip of 0.6 percent, mainly supported by rather diverse demand sources and a high occupancy rate.

In the decentralized market, however, rents fell 1.5 percent from the previous quarter as some landlords, plagued by the higher vacancy rate, actively adjusted their rental expectations to brace for intensifying competition.

In terms of vacancy, CBD areas, benefiting from no new completion during the period due to delayed construction caused by the pandemic, continued to see stable vacancy at around 7.4 percent.

In the decentralized market, the rate climbed 1.1 percentage points to 25 percent during the same period amid the delivery of a new project in the Xuhui Bund area which has brought to the market a total of 170,000 square meters of new space, JLL data showed.

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